Economic Grand Rounds: Financing First-Episode Psychosis Services in the United States

Two members of the ASPE project team visited five RAISE sites in the spring and summer of 2012. The programs were chosen to reflect a range of types of service organizations in different U.S. regions in and outside urban areas. Each selected site was implementing the NAVIGATE intervention. Before arriving at each site, the visitors reviewed written documents provided by site staff. They then interviewed several key informants with a semistructured protocol, which was approved by the Westat Institutional Review Board. Details of the methods are available in the final report to ASPE (6).

Each of the five sites has developed a creative financing solution. Details are included in the full report (6), and the main observations are presented below. Although the five sites’ funding approaches are somewhat idiosyncratic, the tactics used can provide lessons for others interested in offering such services.

The RAISE ETP sites have developed adaptive, if somewhat idiosyncratic, solutions to the challenge of financing NAVIGATE services. They have been opportunistic in taking advantage of local funding mechanisms and tactics for covering services for uninsured individuals or for services, such as SEE, that are often excluded from traditional insurance benefits. Some of these strategies can be emulated or adapted by other communities that wish to implement first-episode services during the current period of early health insurance reform.

New opportunities will present themselves as the ACA is implemented (7). The impact of some ACA provisions, however, was already in evidence at the sites in 2012. Some youths in the project were able to remain on their parents’ insurance even after they no longer were full-time students, taking advantage of an ACA provision already in effect. In addition, they will not become uninsurable in the future due to a preexisting condition thanks to another ACA provision.

Site visits revealed Medicaid as the dominant funding source for individuals with first-episode psychosis. It was particularly important for funding case management and some elements of SEE, in addition to more conventionally reimbursed services, such as individual resilience training and family psychoeducation (both as psychotherapy), medications, and office visits for medication management.

Several ACA provisions affect various aspects of the Medicaid program. For example, before 2014, the ACA makes it easier for states to cover many home- and community-based services, such as SEE. Before the ACA, these services could be offered through a so-called 1915c waiver, which required that the services be budget neutral—that is, that they reduce costs of other Medicaid services so as not to add costs to the overall Medicaid budget. This was a difficult test for mental health services to meet, because some of the most costly services, such as in freestanding psychiatric hospitals and some nursing homes, are excluded from Medicaid coverage, and expected reductions in those services would not have saved Medicaid dollars. Medicaid policy also requires these services to be offered to all beneficiaries, although they can be restricted to a substate region. The ACA now allows a state to offer home- and community-based services through a state plan amendment under section 1915i of the Social Security Act. This amendment does not require budget neutrality. Services must be offered statewide, but they can be targeted to a population, such as individuals experiencing a first episode of psychosis. A state plan amendment, however, still requires a state to expand its Medicaid program to include these services, which could be costly even when targeted to individuals in a first episode of illness. (More details on 1915i are available in the ASPE report [6].)

The ACA Medicaid expansion is perhaps the most significant reform for the financing of first-episode services. Individuals will now be able to qualify for Medicaid benefits on the basis of income rather than qualifying for SSI on the basis of disability. This will bring millions of currently uninsured single adults into the Medicaid program, where they may find coverage for an array of home- and community-based services that are appropriate for treating psychosis in its early stages. Availability of these services, however, will still be up to the discretion of individual states to include them in their Medicaid plans. The Centers for Medicare and Medicaid Services has also clarified that states may develop targeted benefit plans for subpopulations newly eligible for Medicaid under the ACA, creating additional avenues for states to provide early intervention.

There is now hope that individuals may be prevented from becoming disabled—or the time to becoming disabled by psychosis will be prolonged—with more effective, early intervention. Rather than enrolling individuals in SSI at the outset of community services in order to qualify them for Medicaid, programs may now no longer view disability and dependence on SSI as the inevitable outcome and focus instead on supporting these individuals to recover to their full potential, with SSI enrollment as an outcome to be avoided unless absolutely necessary.

As a side benefit, more widespread use of health insurance, such as Medicaid, is likely to improve the capacity of community programs to bill for services. Programs may no longer forgo reimbursement, which they have done in the past, because of the difficulty and expense of filing a relatively small number of claims.

Taken together, the ACA’s reforms and new knowledge about implementing effective first-episode services will create opportunities for community mental health programs. The ACA rationalizes the financing and eligibility for benefits for individuals experiencing a first episode of psychosis. Young people are able to stay on their parents’ insurance and will not be prevented from obtaining their own coverage because of a preexisting condition. The Medicaid expansion will bring the appropriate services to the right individuals, before they become disabled and join the SSI rolls.

Since the Supreme Court decision on the ACA, the Medicaid expansion, however, has become a state option. So with respect to the expansion, as well as to the 1915i state Medicaid plan amendment options, the full benefits of the ACA will require the cooperation of individual states. It will be instructive to evaluate the state-by-state implementation of the ACA’s Medicaid provisions—both in terms of first-episode psychosis services and of health insurance and health care reform more broadly.

Programs such as RAISE are providing lessons to guide the field into a new era of mental health financing, with more widespread use of health insurance, particularly Medicaid. The current experience with first-episode psychosis services, however, also demonstrates continued need for public funding for some services not covered by most traditional health insurance benefits.

The authors acknowledge Marion McCoy, Ph.D., who participated in a site visit. They also acknowledge feedback received on the original report to ASPE from Susan Azrin, Ph.D., Amy Goldstein, Ph.D., and Robert Heinssen, Ph.D., of NIMH and David DeVoursney, M.P.P., of ASPE. The opinions do not represent the positions of the federal government.

The authors report no competing interests.